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The plant and machinery at cost account of a business for the year ended 30 June 20X4 were as follows:
PLANT AND MACHINERY – COST
Debit Side ($)
20X3
1 Jul Balance 240,000
20X4
1 Jan Cash – purchase of plant 160,000
Total $400,000Credit Side ($)
20X3
30 Sep Transfer disposal account 60,000
20X4
30 Jun Balance 340,000
Total 400,000The company’s policy is to charge depreciation at 20% per year on a straight-line basis, with
proportionate depreciation in the years of purchase and disposal.
What should be the depreciation charge for the year ended 30 June 20X4?
A $68,000
B $64,000
C $61,000
D $55,000Answer Working
Plant held all year (240,000 – 60,000) * 20% = 36,000Why have they taken it to the entire year and not just for 3 months? How do I arrive at the final answer of $55,000?
The balance brought forward was 240,000. Of that total, plant costing 60,000 was sold during the year. Therefore the remaining 180,000 was kept all year and the depreciation on this is 20% x 180,000 = 36,000.
In addition they had plant costing 60,000 for the 3 months from 1 July to 30 September, and the depreciation on this is 3/12 x 20% x 60,000 = 3,000.
In addition they bought new plant for 160,000 on 1 January and had this for 6 months, so the depreciation on this is 6/12 x 20% x 160,000 = 16,000.
So the total depreciation is $55,000.
X Co sells goods with a one year warranty and had a provision for warranty claims of $64,000 on 31 December 20X0. During the year ended 31 December 20X1, $25,000 in claims were paid to customers. On 31 December 20X1, X Co estimated that the following claims will be paid in the following year:
Scenario Probability Anticipated cost
Worst case 5% $150,000
Best case 20% $25,000
Most likely 75% $60,000What amount should X Co record in the statement of profit or loss for the year ended
31 December 20X1 in respect of the provision?
A $57,500
B $6,500
C $18,500
D $39,000How do we get the answer as C?
In future please start a new thread when you are asking about a different topic. (It is because our answers are for the benefit of all students and many use the search box to find previous answers 🙂 )
The opening balance was $64,000. Since they have paid $25,000 during the year, this reduces the balance to 64,000 – 25,000 = $39,000.
The balance required at the end of the year is the expected/average cost, which is:
(5% x 150,000) + (20% x 25,000) + (75% x 60,000) = $57,500.Therefore cost of increasing the provision (and therefore the expense in the SOPL) is 57,500 – 39,000 = $18,500.
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